For a cost- push inflation to occur, oil price increases must be accompanied by
A) increases in government expenditures.
B) lower personal tax rates.
C) increases in the quantity of money.
D) decreased investment spending.

Question

Quizplus · Accepted Answer

Cost-push inflation occurs when the costs of production increase, leading to higher prices (inflation) for goods and services. One of the main drivers of cost-push inflation is an increase in the cost of raw materials, particularly oil. Therefore, for cost-push inflation to occur, the increase in oil prices must be accompanied by a corresponding increase in the quantity of money (i.e. inflationary monetary policy). Increases in government expenditures or decreases in investment spending may contribute to inflation, but they are not necessary conditions for cost-push inflation to occur. Lower personal tax rates may actually counteract cost-push inflation by increasing consumer spending power, which can stabilize prices in the short term.

For a Cost- Push Inflation to Occur, Oil Price Increases